Spot bitcoin ETFs capture 90% of market share, leaving futures ETFs in the dust (2024)

FAQs

What is a spot bitcoin ETF? ›

A spot bitcoin ETF is an exchange-traded fund that tracks the spot, or current price of bitcoin. By holding an equivalent amount of bitcoin to back every share of the ETF that is sold, the fund is actually backed by bitcoin itself.

The Bitcoin ETFs were widely seen as the most successful ETF launch of all time. Both in terms of their combined volumes and flows on the first day, as well as their continued high metrics over the following months.

Spot Bitcoin ETFs vs.

Spot Bitcoin ETFs directly hold Bitcoins, but derivatives-based Bitcoin ETFs use financial instruments like futures contracts to replicate Bitcoin's prices. Spot Bitcoin ETFs thus have direct ownership of Bitcoins.

‍Extreme Volatility: Bitcoin is notorious for its substantial price fluctuations, making ETFs that track its price inherently high-risk investments. Investors must be prepared for the possibility of significant and rapid losses. ‍Regulatory Uncertainty: This space for cryptocurrencies is constantly evolving.

Investing in a Bitcoin ETF provides leverage to the price of Bitcoin without having to learn about how Bitcoin works, having to sign up for a cryptocurrency exchange, and taking on the risks of owning Bitcoin directly.

There are several benefits to owning the actual Bitcoin by purchasing through a cryptocurrency exchange. In some situations, the ETFs offer investors all they need. The decision between the two will come down to personal preference and technological savvy.

Billionaires don't just buy individual stocks. ETFs can have excellent wealth-building potential over time, as well. Billionaire investors like Warren Buffett and others are often known for their stock-picking abilities, and for good reason.

Bitcoin Trusts indirectly own Bitcoin through the trust's holdings. Conversely, a Bitcoin ETF (Exchange-Traded Fund) is a fund that tracks the price of Bitcoin and is traded on stock exchanges, just like a stock. ETF investors buy shares of the fund, which in turn owns Bitcoin.

Spot trading is better for long-term investing because you are buying and holding the actual asset without borrowing funds or using leverage. Futures trading is better for short-term speculation, leverage, hedging, and shorting.

How do bitcoin futures ETFs work? ›

Here's how it works: An investment company creates a subsidiary that acts as a commodity pool. The pool in turn trades bitcoin futures contracts typically in an effort to mimic the spot price of bitcoin. But there are costs involved like “roll premiums” and management fees, among others.

A Comparison

Compare futures with ETFs and see why futures are the more compelling instrument. None, there are no annual management fees. ETFs have annual management fees. Futures margin is capital-efficient with performance bond margins usually less than 5% of notional amount.

Eight out of the 10 currently-trading spot Bitcoin ETFs use Coinbase (COIN) as their Bitcoin custodian. The only exceptions are the Fidelity Wise Origin Bitcoin Fund (FBTC), which uses Fidelity itself as a custodian, and the VanEck Bitcoin Trust (HODL), which uses Gemini.

Market risk

The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.

BlackRock has accumulated nearly 11,500 bitcoin for its newly-listed spot bitcoin exchange-traded fund (ETF) as the Wall Street titan rapidly builds one of the largest troves of BTC in the world.

Fidelity's spot crypto ETPs provide investors with the opportunity to gain indirect exposure to the performance of bitcoin or ether in their brokerage accounts. FBTC and FETH are exchange-traded products and can be bought through brokerage, trust, and tax-advantaged accounts.

When you purchase ETFs, you don't own the underlying Bitcoin, thus limiting your control over your investment. The Bitcoins held in the ETF are all under custodial ownership, which means if the custodian were to suffer from a security breach or loss of access, it would greatly affect the investors holding the ETFs.

Spot Bitcoin ETFs are available at many online brokers that offer ETFs, often with no trade commission. One major brokerage, Fidelity, had its own spot Bitcoin ETF, the Fidelity Wise Origin Bitcoin Fund (FBTC), approved.

Bitcoin Trusts indirectly own Bitcoin through the trust's holdings. Conversely, a Bitcoin ETF (Exchange-Traded Fund) is a fund that tracks the price of Bitcoin and is traded on stock exchanges, just like a stock. ETF investors buy shares of the fund, which in turn owns Bitcoin.